The projected cost of the $700-billion financial bailout fund drops sharply, according to a new report from the nonpartisan Congressional Budget Office.

Reporting from Washington — The projected cost of the $700-billion financial bailout fund — initially feared to be a huge hit to taxpayers — continues to drop, with the nonpartisan Congressional Budget Office estimating Monday that losses would amount to just $25 billion.

That's a sharp drop from the CBO's last estimate, in August, of a $66-billion loss for the Troubled Asset Relief Program, known as TARP. Going back to March, the budget office estimated that the program would cost taxpayers $109 billion.

The new, more optimistic forecast largely reflects money the Treasury Department has received as banks have repaid their loans and repurchased stock warrants. It also takes into account lower estimated costs for assistance to insurance giant American International Group Inc. and General Motors Corp., which recently held a highly successful initial public offering, the CBO said.

"Clearly, it was not apparent when the TARP was created two years ago that the cost would turn out to be this low," the budget office said in its report. "At that time, the U.S. financial system was in a precarious condition, and the transactions envisioned and ultimately undertaken through the TARP engendered substantial financial risk for the federal government."

TARP was originally designed to purchase toxic mortgage-backed securities from U.S. financial institutions. But the program was quickly changed by former Treasury Secretary Henry M. Paulson to focus on cash injections into banks and other companies on the brink of failure.

Many of those banks have repaid their loans, and the government has made nearly $12 billion from those transactions, the budget office said.

The change in the TARP program and the stabilization of the financial system more quickly than anticipated meant that only about $433 billion of the fund was disbursed, reducing potential losses, the CBO said.

In addition, the financial reform legislation signed into law in July stopped any new disbursements from TARP more than two months before the program officially ended in October, saving an additional $21 billion in projected costs, the office said.

President Obama and Treasury Secretary Timothy F. Geithner have touted declining projections for TARP losses as a sign that the immensely unpopular program, started under the Bush administration, was effective and not a corporate giveaway.

"We haven't had the chance to review the CBO report, but it seems like the CBO is confirming that the cost of TARP will be much lower than anyone anticipated," Treasury Department spokesman Steven Adamske said.

The Treasury Department last month estimated TARP losses would be $51 billion, and could be as low as $29 billion if AIG's stock held its value as the government sold its shares over time.

In September, federal officials reached a deal with AIG to repay about $95 billion in taxpayer money it still owed from a complex, multistep bailout received from the Treasury Department and Federal Reserve.

The plan increased the U.S. ownership stake in the company to 92% from 80%, but allowed the government to sell shares to recoup the investment. The special inspector general for TARP last month questioned the Treasury Department's calculations and cast doubt that taxpayer losses from the bailout would be low.

But the budget office Monday appeared to validate the department's estimate, projecting that the AIG bailout would end up costing the Treasury just $14 billion.

GM's $20-billion-plus stock offering this month also helped reduce the estimated TARP losses. The government pumped about $50 billion into GM in 2008 and 2009. The initial public offering for the new GM, reorganized through an expedited, government-led bankruptcy, enabled the Treasury Department to recoup about $12 billion by selling more than 350 million shares of stock, the budget office said.